Privatisation, a very British disease

Britain is an extreme oddity regarding privatisation: nowhere else in the advanced world is there such a willingness to sell everything that isn’t nailed down. Time and again the British public is ripped off and sold out by its leaders.

Flickr/Byzantine_K

A few weeks ago, London was the scene of a heist of
spectacular proportions. We may never know the full extent of what was stolen,
but the indications are that it was anywhere between £1 billion and an eye-watering £6 billion. Although the robbery was carried
out in broad daylight, it is unlikely the money will ever be recovered or the
perpetrators brought to justice. This is because they were sitting in some of
the world’s largest financial institutions – Goldman Sachs, Barclays, Bank of
America and UBS – and acting on behalf of the British government.

Their instrument was the
undervaluation of shares in Royal Mail, which with the initial public offering
immediately soared from 330p to above 500p. The company was sold at £3.3
billion but in J.P. Morgan’s estimation the real value may have been as high as £10 billion. No wonder the IPO was
oversubscribed. It was, as TUC General Secretary Frances O’Grady pointed out, akin to “selling five pound notes for four quid.” The
biggest private shareholder is now the hedge fund TCI, which snagged 5.8 per cent of the
company. The principal victim of this daylight robbery is, of course, the
British public.

There has been plenty of public and
media commentary – and even a little outrage – at this latest instance of the
looting of Britain’s
dwindling public sector. After all, even Margaret Thatcher was “not prepared to have the
Queen’s head privatised.” The sell-off was conducted in the teeth of sceptical
public opinion as well as fierce opposition from postal workers, with 96 per
cent opposed in a recent ballot. Billy Hayes, General Secretary of the
Communication Workers Union, denounced the manner in which a centuries-old public company,
returning regular profits to the Treasury, was “flogged on the cheap for no
good reason.” Postal workers have voted for industrial action, seeking
guarantees on pay and working conditions.

Missing from most of the discussion,
however, is any recognition of just how extraordinary all of this is. Business
Secretary Vince Cable may have faced some tough questions about the handling of the flotation
but it will blow over. No heads will roll. Asset-stripping of the public sector
has become a fact of life. Even among the British left, battered by the serial
privatisations of the 1980s and 1990s, there is a certain wearied resignation,
a sense of going through the motions in the face of the seemingly unalterable
order of things.

We should resist this normalisation.
Viewed from an international perspective, Britain is an extreme outlier
regarding privatisation. In no other advanced industrial country would quite so
flagrant a rip-off have been engineered and tolerated. Nowhere else – not even
in the corporate-dominated United
States – is there such a degree of
nonchalance about ownership and control over vital infrastructure and public
services. In the UK,
the attitude seems to be that if it isn’t nailed down then it is for sale.
Privatisation is increasingly the British disease.

From Pinochet to perestroika

Privatisation has been a prominent
feature of the British political landscape for decades, but on the basis of an
assumed international policy consensus about how to improve efficiency and
economic performance. It is true that, since the 1980s, privatisation has been
a key instrument in the toolkit of neoliberal globalisation, enforced from
Latin America to Asia to Africa wherever the
writ of the IMF and World Bank could be made to run. By 2009, 132 of the world’s 500 most valuable corporations were privatised former state
enterprises. But within this neoliberal framework, very few countries were
actually prepared to go quite so far quite so fast as the UK.

In a 2002 encomium to privatisation,
HM Treasury calculated that, all told, between 1980 and 1996 Britain had
racked up fully 40 per cent of the total value of all assets privatised across
the OECD. This is an astounding figure. Elsewhere, the only remotely comparable
experiences occurred in countries – Pinochet’s Chile
and the disintegrating Soviet Union – that
were undergoing exceptional transitions and in which the rule of law was
basically inoperative.

Chile was the original laboratory.
Between 1975 and 1989, under the jackboot of the Pinochet regime and at the
urging of carpetbagging Chicago
school economists, the country implemented two waves of privatisation. Not
merely companies nationalised by Allende but a host of older public concerns –
including 16 banks and thousands of mines, real estate holdings and
agricultural enterprises – were auctioned off to elites at bargain-basement
prices.

Given the accolades afforded the
“Chilean miracle” by Milton Friedman and others, it is worth noting that the
first wave of Chilean privatisation was a major embarrassment. All but five of
the banks and many of the other enterprises failed and had to be taken back
into public hands. By 1983 the government-controlled portion of the economy
again equalled that under Allende, and critics mockingly referred to a “Chicago road to socialism.” (The second wave
of privatisation, beginning in 1985, eventually returned many of these firms to
the private sector).

Road tested in Chile, privatisation was then exported out
across Latin America and worldwide. Under
Margaret Thatcher, Britain
served as the most prominent conduit and cheerleader. With free market
economists again hectoring from the sidelines (see Thatcher’s correspondence with Hayek), all memory of capitalist
mismanagement of factories and mines in the interwar years was forgotten as the
commanding heights of the economy – electricity, gas, water, steel, civil
aviation, telecoms and railways – were delivered up for auction. It was a
massive transfer of wealth from public to private interests, marketed to the
people with soothing promises of a shareholder democracy.

As with Royal Mail, the brazenness
of the theft was stunning. In his magnificent recent book
on public ownership,
Andrew Cumbers, Professor of Geographical Political Economy at the University of Glasgow, found “considerable evidence that
state assets were sold off at remarkably cheap prices.” Shares in BT jumped
from 130p at privatisation to £15 by 1999. Railtrack was sold for £1.9 billion,
but within two years had soared in value to £8 billion. The rolling stock
company Porterbrook Leasing, privatised for £528 million, was re-sold just
eight months later for £826 million, while the other two rolling stock
companies were subsequently sold for £900 million more than their privatisation
price. The architects of privatisation could barely be bothered to disguise
what they were up to. Former Chancellor Nigel Lawson went so far as to state in
his memoirs that undervaluation was a deliberate government tactic.

Hugely important strategic
considerations were at work, as was evident in the subsequent development of
the UK
economy. Privatisation not only allowed for attacks on the trade unions but
also – together with big bang deregulation – contributed to the build-out of
London-based capital markets. The £3.9 billion rollout of shares in BT in 1984,
for example, was six times bigger than any previous IPO and four times the size of any
other capital-raising exercise in the world at the time. In this way, the
privatisations of the eighties and nineties helped secure the City’s continuing
place as a world financial capital.

In addition, the sale of 2.5 million
council houses at a total value of £86 billion – more than all other
privatisations combined – helped generate the real estate boom and (as Stephen
Wilks notes) ultimately contributed to the property credit bubble.
Revenues from the sale of other public assets – totalling £69 billion between
1979 and 1997 – allowed successive Tory governments to maintain public spending
while cutting taxes for short-term electoral gain. Leon Brittan insisted that “people always overestimated Mrs Thatcher’s grasp of
economics while underestimating her grasp of politics.”

By the time the Berlin Wall fell,
privatisation was in full swing. With the “Harvard Boys”
providing the tutelage, the former Soviet Union
saw a bonanza of primitive accumulation as state assets were distributed among
a gangster-capitalist nomenklatura and new billionaires minted virtually
overnight. A disaster for Russia,
the effects are visible today in London property
values and ownership of the Premier League, with the UK increasingly a playground for
Russian oligarchs. (Vladimir Putin has been unwinding some of this via a rolling
programme of re-nationalisation, especially in the energy sector).

Privatisation was also the keystone
of structural adjustment programmes imposed across the global south, leading in
many regions to a “lost decade.” When centre-left “Third Way” governments took office in Western Europe they largely acceded to the existing
dispensation, continuing the sell-off by other means and bringing in private
capital by the back door. New Labour was among the most avid, as can be seen in
Britain’s
fateful adoption of the private finance initiative, or PFI.

A tale of two post offices

Although privatisation was installed
rhetorically and ideologically throughout the advanced industrial world, in
practice no country embraced it as fully and wholeheartedly as Britain.
Elsewhere, it was a much more pragmatic and opportunistic and far less
ideological affair. This can be seen in the contrasting experience of the United States,
often considered the beating heart of free-wheeling no-holds-barred market
capitalism. Despite attention-grabbing headlines detailing spectacular
“privatisations” – often ending in fiasco – such as Chicago’s parking meters, Atlanta’s water system and Indiana’s toll road, the American reality is more complex.

First, contrary to the British
custom of literally selling public assets outright, the American model usually
consists of contracting the operation of such assets to private interests for
extended periods. While this can be detrimental to both consumers (in the form
of higher prices and inferior services) and the wider public, at least the
assets themselves remain in public hands. One benefit of such an arrangement is
that when “privatisation” goes bad, the contracts can be – and often are –
cancelled and public management restored without the complications of a
full-blown re-nationalisation. A study by Professor William Megginson, a privatisation expert at
the University of Oklahoma, found that between 1961 and 2000 just two
state-owned enterprises were privatised through a public share offering in the United States:
Conrail in the late 1980s and United States Enrichment Corporation in 1998. By
contrast, there were 43 such privatisations in Britain.

Secondly, when it comes to the
actual sale of public assets in America,
public and politicians alike are often chary. This reluctance can throw up some
strange bedfellows. In 2013, the Obama administration’s budget included a proposal to privatise the Tennessee Valley Authority, a
New Deal-era creation and the largest public energy utility in the country. The
TVA currently provides 165 billion kilowatt hours of power to 9 million
Americans, has $11.2 billion in sales revenue, and employs more than 12,500
people. As with Royal Mail, TVA privatisation was touted as a way to keep some
routine but necessary borrowing off the public books.

Fierce opposition quickly emerged –
led by “free market” Republicans
well aware that the TVA has provided affordable energy to their constituents
for eight decades. Senator Lamar Alexander, a Tennessee Republican who has
vehemently opposed government tax credits and subsidies for renewables, called
the proposal “one more bad idea in a budget full of bad ideas.” Congressman
John L. Duncan, Jr., another Tennessee Republican, described privatisation as
“something that has been proposed in the past and been determined to be a very
bad idea.” Tennessee’s
other Republican Senator, Bob Corker, was equally dismissive: “I doubt this
idea gains much traction.”

For an even more direct contrast in
attitudes, take the saga of the United States Postal Service (USPS). Interested
in both eliminating a low-cost public competitor and facilitating the massive
transfer of valuable real estate to private hands, U.S. corporate interests, including FedEx
and UPS, have had the post office in their crosshairs for years. In keeping
with this, Congress has repeatedly crippled efforts by USPS to remain
economically viable. In 2006, the Postal Accountability and Enhancement Act forced
USPS to pre-fund 75 years of potential future retiree benefits in just ten
years – a whopping $103 billion a year. Renowned consumer advocate Ralph Nader called the plan
“something that no other government or private corporation is required to do …
an incredibly unreasonable burden.” According to Nader’s calculations, without
the pre-payment obligation USPS would likely be profitable. Furthermore,
Congress has repeatedly stymied attempts by USPS to rectify its financial
situation by cost-saving measures or changes in services.

The point is that, unlike Royal Mail
– quickly privatised with minimal opposition despite its profitability – the
deeply-indebted USPS is still firmly in public hands after years of determined
corporate lobbying, and will remain so for the foreseeable future. Much of the
reason relates to the anticipated negative reaction of the American public to higher
costs and reduced services, seen as inevitable consequences of privatisation.
Only in Britain
is the attitude to privatisation so gung-ho as to completely override all such
considerations.

Public ownership for the twenty-first
century

Despite the taboo on public
ownership enforced by the mainstream media and widely observed by the political
class, opinion polls continue to demonstrate strong popular support for the
idea in Britain.
In fact, privatisation never commanded majority support even at the height of
its popularity in the 1980s. The recently launched ‘We Own It’ campaign is finally penetrating
the fog of misconceptions to bring much of this to light.

Part of the problem is a legacy of
misunderstanding surrounding the experience of public ownership in the UK. In
implementing the Labour government’s nationalisation programme after 1945,
Herbert Morrison strongly favoured the model of top-down centralised public corporations
at arm’s length from democratic control. This foreclosed the possibility of
more participatory forms while supplanting older and more varied traditions of
municipal and cooperative ownership. Moreover, the newly nationalised
industries, many of which had been lossmaking when in private hands, faced
serious restrictions, including limits on borrowing and artificially low
pricing of their outputs. Far from being a drain on the economy they actually subsidised
the private sector.

Perhaps more surprisingly, despite
all the constraints the British public sector largely outperformed comparable
private sector companies. As Andrew Cumbers points out, “total factor
productivity … in the nationalized industries of gas, electricity and water
increased by 3.1 per cent between 1950 and 1985, a figure that was higher than
both their US privately owned counterparts (2.6 per cent) and UK manufacturing
as a whole (1.8 per cent) over the same period.” It didn’t matter. Stuck with
the reputation of being inefficient, bureaucratic and underperforming, by the
time of the Thatcher assault they were sitting ducks.

In fact, evidence from around the
world – from Korea and Taiwan to Norway,
France and Germany – amply
demonstrates that public ownership can be highly efficient and competitive.
Many of the world’s best-known companies, from Singapore Airlines to Japan Post
Bank, are significantly publicly owned, as is much of world oil production.
There is also the great irony that many of the companies that have taken over operation
of Britain’s privatised utilities, infrastructure, and public services are
themselves state owned and operated – but by other countries. In recent weeks
the French public energy giant EDF and two state-owned Chinese companies have signed an agreement with the government to build a new nuclear power
plant in the UK.
The profitable publicly run East Coast mainline is also to be put up for sale,
with potential bidders including SNCF and Deutsche Bahn, the French and German
state-owned railways.

Public ownership, then, need not be
inefficient. It need not be distant, bureaucratic and unaccountable either.
Many of those advocating public ownership today are calling for a more
decentralised, plural and democratic form of collective ownership than that
prevalent in the past – one in which local communities and public sector
workers have greater opportunities for participation and control. Such models
are springing up already. Latin America, the
first continent to experience neoliberalism and the first to emerge from
beneath its heel, is now the epicentre of experimentation with new public
ownership forms for the twenty-first century. The water sector, in particular,
is witnessing a wave of re-municipalisation in which local authorities and
worker cooperatives are coming together with trade unions and civil society
groups in so-called “public-public
partnerships” that point the way to exciting new arrangements
superior to the top-down public ownership of the past.

In the wake of the crisis, late neoliberal
capitalism is made up of so many naked emperors it can seem like a visit to the
Roman baths. Chief among them is privatisation, shorn of its clothes by the
actual performance record of the privatised companies and immense costs to the
public. Profits, dividends and share prices may have gone up, but privatisation
has done precious little to lower prices or provide better services to
consumers – quite the opposite. Given all this, perhaps angry postal workers
will be the ones to begin the fightback. As we have proposed to the
Communication Workers Union, postal workers could pool their individual shares
in Royal Mail, which collectively amount to ten per cent of the company, in a
union-managed trust and use the dividends to purchase new shares, working
toward a controlling interest in the firm. The end result could be an
innovative new partnership between workers and the state. Either way,
privatisation in Britain
should long ago have run its course. It is high time that public ownership be
placed firmly back on the political and policy agenda where it belongs.

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